april 1, 2020 cares act briefing for nonprofits...3 employment considerations in a time of crisis 4...
TRANSCRIPT
April 1, 2020 CARES Act Briefing for Nonprofits
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Agenda
1 Overview & Update: Federal Stimulus Programs
2 Deep Dive on the Paycheck Protection Program (“PPP”)
3 Employment Considerations in a Time of Crisis
4 Steps to Consider
5 What Comes Next
The information provided is not intended to constitute legal advice;
instead, all information, content, and materials are for general
informational purposes only
PresentersMac BernsteinFederal Law & Policy Partner
T +1 202 799 4302
Elizabeth DeweyLitigation & Regulatory Partner
T +1 202 779 4505
Shaked HoterCorporate Associate
T +1 202 799 4238
Tami HowieCorporate Partner
T +1 202 799 4555
Ryan VannEmployment Partner
T +1 312 368 4410
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By the Numbers
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
Education/other
$43.7 billion
(estimated)
Safety Net
$26 billion
Public Health
$153.5 billion
State & Local Gov’t
$340 billion
Big Corporations
$500 billion
Small Business &
Nonprofits
$377 billion
Individuals
$560 billion
(estimated)
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Stimulus and Nonprofits
• The CARES Act was enacted on Friday, March 27
• The Act set up a new lending program (the “PPP”) by expanding the
authority of the existing 7(a) SBA program
• Available to nonprofits with no more than 500 employees
• May be available to individuals that qualify as self-employed, sole
proprietors, or independent contractors
• The Small Business Administration (“SBA”) is required to issue regulations
within 30 days after the enactment of the CARES Act
• Other elements of the CARES Act of potential value to nonprofits include:
• SBA Emergency Disaster Loans
• Employee Retention Tax Credit
• Expanded charitable deductions
• While this plays out, nonprofits should get educated on various funding
sources/programs that they may be eligible for
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Blueprint for the Weeks Ahead
Understand Key Programs Set Your Strategy Prepare to Execute
Programs have different loan
size limits, underwriting
requirements and allowable
uses
Leveraging one program may
preclude you from
participating in another
Option(s) based on
qualification & circumstances
Balancing cash realities with
key employment decisions
and potential consequences
for some loan/loan
forgiveness programs
Option(s) based on
objectives & circumstances
SBA regulations and specifics
of the application process for
some program elements are
not yet in place, but there are
things you can do now to
prepare
Data Collection and internal
planning
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Key Programs & Funding Sources
• Loans of up to $2M for organizations
impacted by COVID-19
• “Substantial economic injury” and
located in declared disaster area
• Allows use for working capital
• Collateral Requirements may be issue
depending on existing debt covenants
• Affiliation rules
Economic Injury Disaster Loans
(EIDL)
• Loans of up to $10M for small
businesses impacted by COVID-19
• Payroll formula determines loan amt
• Allows use for payroll, rent, utilities
• No Collateral Requirements
• Deferred re-payment
• Debt forgiveness component
• Affiliation rules
7(a)
(“Paycheck Protection Program” or
“PPP”)
• Allows employers to defer paying
their portion of the social security
payroll tax (6.2 percent) otherwise due
• The Act specifies that applicants for
payroll tax deferral are not eligible for
“PPP” loans
Payroll Tax Deferral
• Loans of up to $1M processed on
expedited basis
• Credit decisions made by SBA lenders
• Can require collateral
• Affiliation rules
7(a)
SBA Express Loans
Program Considerations for NonprofitsSummary
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Unpacking the CARES Act: Paycheck Protection Program (“PPP loan” or “PPP”)
Interest
Up to 4% The PPP provides short-term cash flow
assistance to qualifying Nonprofits to
help these Nonprofits and their
employees deal with the immediate
economic impact of the COVID-19
pandemic. Loans are made by lenders
certified by the SBA and guaranteed
by the federal government. The SBA
will administer the PPP.
Maximum
loan amounts
through 12/31/20
$10M
Profile Overview
Loan Term w/
6-12 months
deferral relief on
principal/interest
and
loan forgiveness
provisions
Up to
10 years
Collateral or
Personal
Guarantee
Requirements
NoLoan Fees &
Prepayment
Penalties
Zero
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Do I Qualify for a PPP Loan?
Eligibility
• CARES Act establishes Section 7(a) Paycheck Protection Program (PPP) making
forgivable loans available for qualified expenses
• Nonprofits explicitly eligible
• CARES Act allocates $349 billion Paycheck Protection Program
• Eligible Nonprofits include:
• 501(c)(3) organizations
• Veterans groups
• Tribal organizations
• Qualifying Nonprofits may not have more than 500 employees
• Other qualifying entities include “small business concerns” and “other business
concerns” meeting certain employee limits (the greater of 500 employees or the
maximum established under the NAICS code)
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How Much Do I Get?
Loan Size
Depending on your Nonprofit’s situation, the loan size will be
calculated in different ways (see below). The maximum loan
size is always $10 million.
• General rule: the max loan is equal to 250 percent of the
average monthly payroll for the one year period before the
loan is made
• Seasonal employers: February 15-June 30 is the timeline
for seasonal employers (as determined by the
Administrator). For them, the average total monthly
payments for payroll will be for the 12 week period
beginning either Feb 15, 2019 or March 1, 2019 (at the
employer’s election), and ending June 30, 2019
• If you were not in business between February 15, 2019 –
June 30, 2019: Your max loan is equal to 250 percent of
your average monthly payroll costs between January 1,
2020 and February 29, 2020
2/15/19 6/30/19
Average Monthly Payroll
* 250% = Loan Size
Average Monthly Payroll
* 250% = Loan Size
2/29/201/01/20
General Rule
Companies not in
business between
1/15/19-6/30/19
Average Monthly Payroll (12 months prior to loan)
* 250% = Loan Size
Seasonal Employers
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How Much Do I Get?
Payroll Cost Calculation
Costs eligible for payroll:
• Compensation (salary, wage, commission, or similar
compensation, payment of cash tip or equivalent)
• Payment for vacation, parental, family, medical, or sick
leave
• Allowance for dismissal or separation
• Payment required for the provisions of group health care
benefits, including insurance premiums
• Payment of any retirement benefit
• Payment of State or local tax assessed on the
compensation of employee
• Compensation to independent contractors
Costs not eligible for payroll:
• Employee compensation over $100,000
• Taxes imposed or withheld under chapters 21, 22, and
24 of the IRS code
• Compensation of employees whose principal place of
residence is outside of the U.S
• Qualified sick and family leave for which a credit is
allowed under sections 7001 and 7003 of the Families
First Coronavirus Response Act
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How Can I Spend Loan Proceeds?
Allowable Uses for Loan Proceeds
• Payroll costs (as noted above)
• Costs related to the continuation of group health care
benefits during periods of paid sick, medical, or family
leave, and insurance premiums
• Employee salaries, commissions, or similar compensations
(see exclusions above)
• Payments of interest on any mortgage obligation (which
shall not include any prepayment of or payment of principal
on a mortgage obligation)
• Rent (including rent under a lease agreement)
• Utilities (electric, gas, water, transportation, telephone and
internet access)
• Utilities, rent and mortgage obligations have to be
obligations of the borrower existing prior to Feb 15, 2020
• Interest on any other debt obligations that were incurred
before the covered period
Loan Terms
• The maximum term is 10 years, the maximum interest
rate is 4 percent, zero loan fees, zero prepayment fee
(SBA will establish application fees caps for lenders
that charge)
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How Much PPP Gets Forgiven?
Forgiveness
• Forgiveness on a covered loan is equal to the sum of
the following payroll costs incurred during the covered 8
week period compared to the previous year or time
period, proportionate to maintaining employees and
wages (excluding compensation over $100,000):
• Payroll costs plus any payment of interest on any
covered mortgage obligation (not including any
prepayment or payment of principal on a covered
mortgage obligation) plus any payment on any
covered rent obligation plus any covered utility
payment
Process for Forgiveness
• To receive forgiveness, you must apply through your
lender for forgiveness on the loan. Although specific
details are still forthcoming, in this application, you will
likely need to include:
• Documentation verifying the number of employees
on payroll and pay rates, including IRS payroll tax
filings and State income, payroll and
unemployment insurance filings
• Documentation verifying payments on covered
mortgage obligations, lease obligations, and
utilities
• Certification from a representative of your
organization that is authorized to certify that the
documentation provided is true and that the
amount that is being forgiven was used in
accordance with the program’s guidelines for use
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Employment Considerations
Furloughs
Mandatory period of unpaid leave implemented by
companies to adjust budgets for a temporary period until
the financial side of the organization improves or the
organization’s strategy settles down.
• Employees are still employed
• Typically not required to pay out accrued PTO unless
furlough is too indefinite, but need to check with state
law
• Eligible for unemployment benefits on day 1 with federal
government funding waiting week
• Large Nonprofits (50 or more FTEs) must continue group
health insurance coverage
• Smaller Nonprofits (under 50 FTEs) typically can
continue group health insurance coverage but must
confirm with broker and plan documents
Layoffs
RIFs or layoffs are when an organization terminates
employment and reduces its workforce.
• Employment ends
• Must pay out accrued PTO pursuant to policies/state
law
• Employees eligible for unemployment benefits
• Participation in the group health insurance plan ends,
but employees can elect to continue coverage through
COBRA or similar state insurance law
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Employment Considerations
• UI benefits are determined by state and typically range between 40% -
60%, depending on income level with max cap
• An additional $600/week will be funded by the federal government for up
to 4 months
• UI benefits are typically provided for up to 26 weeks, but federal stimulus
package will extend benefits for up to 13 weeks additional weeks
Unemployment Benefits Stimulus
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Steps to Consider
• Consider the pros and cons of Furlough vs. Layoffs
• If you are preparing your organization’s paperwork, consider gathering:
• Complete payroll cost estimates, including payroll registry, mortgage/rent and utility obligations for appropriate
period(s) outlined (including salary caps at $100,000)
• Last three fiscal year end financials (minimum tax returns)
• Year to date financials for February 15, 2020 with prior period comparable
• February 15, 2020 financials through application, broken out as a separate period (to isolate the negative impact)
• 2020 payroll period reports (allow for isolation of payroll costs)
• Any other information pertaining to negative financial impact of the virus (e.g., loss of sponsorships/donations, etc.)
• Begin to consider 7a lenders
• Plan to put processes in place such as separate bank account and ledger to track that funds are used for approved
forgivable purposes
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Other Programs to Consider:Economic Injury Disaster Loans (EIDL) Profile
Loan Amounts
Up to $2M
Loan Term
30 Years
Interest Rate for
small business
3.75%
2.75%Interest Rate for
Nonprofits
Qualifications• Headquartered in state that has declared COVID-19
Disaster
• Small business: <$50M Revenues/under 100 EEs
• Nonprofits (not religious or charitable organizations)
Uses
• Working capital loans to pay fixed debts, payroll,
accounts payable and other bills that could have been
paid had the disaster not occurred; cannot be used to
replace lost sales or profits or for expansion
• Businesses may receive both PPP loans and EIDLs, so
long as both loans are not used for the same purpose or
otherwise duplicative
Days from
Documentation
to Approval
Guidance
21
30-45Days to Cash
GuidanceConsiderations
• Eligibility based on size and type of business and its
financial resources (as determined by SBA)
• Loans over $200,000 may require collateral/guarantee
as determined by the SBA during the review of the
application
• Affiliation rules apply
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Other Programs to Consider:Payroll Tax Deferral & Retention CreditsPayroll Tax DeferralThe Act allows employers (and self-employed individuals) to defer paying their portion of the social security payroll tax
(6.2 percent) otherwise due for the period ending December 31, 2020. Such deferred taxes are due in two installments:
50% by December 31, 2021, and 50% by December 31, 2022.
This payroll tax deferral applies to all employers, with no requirement to show any specific COVID-19-related impact.
However, the deferral is not available to any employer that receives loan forgiveness with respect to the “PPP” program.
Employee Retention CreditsThe Act provides a refundable tax credit against employment taxes paid by eligible employers in an amount equal to 50%
of the first $10,000 of “qualified wages” paid to employees. An employer is eligible for the payroll tax credit if, during any
calendar quarter of 2020, it either has (i) operations fully or partially suspended due to a governmental order related to
COVID-19 or (ii) a decline in gross receipts of more than 50% compared to the same quarter of the prior year. “Qualified
wages” are treated differently for employers based on number of full-time employees. For employers with more than 100
full-time employees, “qualified wages” only covers wages paid to those employees who are not providing services due to a
COVID-19-related impact as described above. For employers with 100 or fewer full-time employees, “qualified wages”
covers wages paid to all employees of the employer during any applicable quarter in which a COVID-19-related impact as
described above, including employees who are continuing to provide services to the employer.
This credit is not available to employers that receive a loan under the “PPP” program.
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Other Considerations: CARES Act Expands Charitable Deductions
• Allowance of partial above the line deduction for charitable contributions up to
$300 of cash contributions, whether taxpayer itemizes deductions or not
• Modification of limitations on charitable contributions during 2020 increases
limitations on deductions for charitable contributions by individuals who
itemize, as well as corporations
• For individuals, the 50-percent of adjusted gross income limitation is
suspended for 2020
• For corporations, the 10-percent limitation is increased to 25 percent of
taxable income
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Other Considerations: CARES Act Assistance Available to Individuals
• SBA Paycheck Protection Program open to individuals who qualify as self-
employed, sole proprietors, or independent contractors
• Expanded unemployment insurance programs:
• Eligibility expanded to self-employed, independent contractors, those with
limited work history, etc., who are unable to work as a direct result of the
coronavirus public health emergency through the end of 2020
• Provides additional benefits of $600 per week for up to four months
• Many states waive waiting period before filing for unemployment
• 2020 “Recovery Rebates” provide individuals with adjusted gross income up to
$75,000 ($150,000 married) $1,200 ($2,400 married) rebate, plus $500 per
dependent child
• Waives 10% tax penalty for early withdrawal of up to $100,000 from certain
retirement accounts
• Automatic tax filing extension to July 15, 2020
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What next?
20
A look ahead
• The SBA guidance is expected soon, including specifics on the process for
submitting a loan application. Once the SBA publishes regulations for the
PPP application process, DLA Piper will be able to advise and help
nonprofits apply for PPP loans.
• Other stimulus programs are already under consideration:
• Infrastructure and transportation
• Additional tax provisions
• Pandemic risk insurance
• Consider putting in place policies and procedures to restart operations
21
Shaked HoterCorporate Associate
T +1 202 799 4238
Mac BernsteinFederal Law & Policy Partner
T +1 202 799 4302
Elizabeth DeweyLitigation & Regulatory Partner
T +1 202 779 4505
Tami HowieCorporate Partner
T +1 202 799 4555
Ryan VannEmployment Partner
T +1 312 368 4410
Thank You & Additional Q&A